The Cyprus Banking Disaster

The Cypriot banking industry
Photo by Jonathan Boeke

By now you may have heard of the infamous Cyprus "haircut", a tiny little euphemism which obscures the fact that there's a serious issue with the European economy and rather than fix the underlying problem — a common currency without a common economic policy — Europe thought it would be a good idea to fix Cyprus' economic woes by partially paying for the national debt by confiscating part of the money that people had kept in Cypriot banks. Northern Cyprus, a state recognized only by Turkey, was once upset that Cyprus joined the EU, but now they may be having the last laugh.

That's a gross oversimplification, but it tells you in a nutshell what is scaring the hell out of a lot of people in Europe, including me. You see, as I'm going freelance in a few weeks, my wife and I have been looking at other countries to see if we could find a better cost of living. In fact, Cyprus was one of the countries we looked at before the government-sanctioned bank robbery occurred.

You know where else we were seriously looking at? Luxembourg and Malta, two countries whose banking industries also have Europe worried. Needless to say, the Cyprus actions means that we are very unlikely to pick up roots and move our business to either of those countries. Thus, we're in the (admittedly enviable) position of having to scour France for the best place to live. Taxes may be higher than in other countries, and President Hollande is about as useful as an ice pick on the Titanic, but the French public would tear this country apart if there was even a hint that their money was going to be taken from the banks to pay for the country's economic crisis; there's a benefit to the French national sport of going on strike.

Frankly, I think the Cyprus haircut was an astonishingly bad move on multiple fronts, but in telling people that the money in the banks they've worked hard to save isn't safe, they're setting this continent up for bank runs in any country where a bailout is discussed. I'm not the only one to think this is a bad idea. Now we're hearing reports that the president of Cyprus may have transferred millions of dollars out of the country prior to the haircut and Infowars (admittedly, a site with a questionable reputation) has a summary of news stories showing that the rich had already pulled their money out of Cyprus, leaving the lower and middle classes to take the losses.

Now, the Cyprus finance minister has resigned, the anonymous electronic (and stateless) Bitcoin currency is spiking in value, the Cypriot economy is likely to collapse further and I think there's a hell of a lot more in the Cyprus story in the future — and it's not going to be good. It's one thing to impose austerity; it's another thing entirely to confiscate people's money.